Multinational banks: Supranational resolution regimes and the importance of capital regulation Volkswirtschaft - Open Access LMU - Teil 03/03

The lack of coordination in the resolution of multinational banks has led to demands
for the increased centralization of resolution regimes. However, as this
paper argues, the anticipation of resolution procedures affects the incentives of
host countries to impose capital standards on their resident banks. Critically, it
is shown that overall welfare can even be decreased by introducing a centralized
resolution regime without fully centralizing capital requirements. As, in the aftermath
of the financial crisis, only countries that are not part of a supranational
resolution regime unilaterally and significantly increased the capital requirements
for their largest resident banks, this paper can help to understand and study the
heterogeneity of the observed regulatory approaches.